BMO Waiting To See 'Green Shoots' For Express, Trims Price Target

The analysis comes on the heels of the company reporting below the estimated results for the second quarter, in addition to offering a tepid outlook for the third quarter and full year.

Analysts John Morris and Brandon Cheatham cited weak traffic and an over-assorted product offering for delivering "lighter-than-expected earnings." The increased spend on promotional activity also hurt Express' results.

BMO said, "Despite the company's efforts to curtail its over-assortment issue and positive cost-saving initiatives (incremental $40 million over the next two years), we maintain our Market Perform rating until we see the green shoots of repatriating its core 20–30-year-old target customer."

Related Link: Express Is Now A "Show-Me" Story, Says MKM Partners

The brokerage indicated that the company is working on the over-assorted product offering issue, which could witness improvement before the fourth quarter ends. Therefore, the analyst expects a fully corrected assortment by fiscal year 2017.

BMO is not worried about increased promotional activity in the second quarter, pointing out the clean inventory at the end of the quarter. The lead analyst expects this to ease some headwinds in the fall season.

Additionally, the brokerage expects Express to gain $9 million from cost savings in the current fiscal year. As far as the long term, the lead analyst pointed out the company's cost savings projection of $44–$54 million.

At time of writing, Express was down 0.84 percent on the day and trading at $11.84.

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